You can get external hard drives from Other World Computing (OWC, or macsales.com) for a good price. I get most of my Mac aftermarket stuff there.
I run a Mac Mini modified by Mojo Audio. As part of the upgrade package, I moved from a 2TB OWC external hard drive to a 4TB AV drive. Same chassis, but the AV drive is much quieter and is more geared to serving up music 24x7, as the disk doesn't have to do head alignment and other maintenance that can interfere.
+1 on Steve's recommendation: Use Firewire to connect the drive if you're using USB for your outgoing signal.
Backup, backup, backup! After ripping and storing hundreds or thousands of CDs, would you ever want to do it all over again? Simply daisy-chain a second drive via Firewire, clone the disc (Carbon Copy Cloner), then store the second drive in a fire safe or off-site.
Lots of good recommendations here, but overall, know that you're not likely to find too many issues simply by moving your data to external drives.